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Prices Up Wages Down

All Share Price Index of Dhaka Stock Exchange dropped below 4,000 points, matching its accomplishment last in 2009. Since December 2010, DSE has been struggling to stabilize trading. Average daily turnover rose to nearly 4 billion taka in 2010. It now trades at 800 million taka, a drop of 80%. One investor ended his life by calling off all bets by committing suicide. Professional white collar workers eagerly for new year hoping for an annual increase in wages to offset inflation as a minimum relief from financial pressures. 2012 may not be that year of relief.

The General Manager of a listed company, and a member of one of the largest conglomerates, expressed as such, ‘I dont understand the share market. Whenever I tried to understand it I distrusted it more. I dont know my listed company’s share price. It is used by speculators for their bets. Company managers do not use it in production targets, salesmen dont need it for distribution channels, quality control has no clue about it. Its those big banks who appeal to our greedy nature to lure us into gambling so that they can make interest, dividend, capital gains and normal profit on our money”.

Capital markets attracted big banks to give margin loans to retail investors using the shares as collateral. They had ‘stop loss’ and forced sale options. When the market crashed all forms of stop loss mechanisms crashed with it. Banks are now stuck with loans carrying below par asset value, therefore encashment of shares will not help at all. New money could come from new businesses or new funds from outside. Printing new money will only push prices up, forcing inflation to be higher than current 12%. To top it, local currency has depreciated by nearly 20% for an import dependent country. Higher price of commodoties does not mean higher price for farmers. In fact, farmers will end becoming poorer because their wealth will erode with inflation, forcing them to alter consumption pattern.

With inflation ready to climb above 12%, banks stuck in liquidity problem, local currency depreciation, new business slowing down, an average white collar worker will see his real income drop quite dramatically. His income in constant terms will be lower than previous years makinhg him poorer. In fact, wages have gone down for workers, whilst prices charged by bug businesses went up. Classical way to make rich richer and poor poorer.